The world is saved!!!
The EU committed to a one trillion dollar bailout!!this October is the 2nd best month for stocks going back 50 years due to this!!!
Lets look closer shall we...
First of all the bailout fund is called the EFSF...
It consists of about $200 billion dollars after backing out the bailouts for Greece/Portugal Ireland..
Actually its not even $200 billion in cash, because no European country has contributed to it. it is a fund that borrows money in the market and the European countries "promise" to pay it back.
Yah the same countries that promised the following. Check out their "trustworthiness"
1. greece says buy our bonds we will pay you back..they lied...bailout
2. EU states they will never let greece default...they lied...21% haircut in summer
3. they promised that 21% haircut would solve the problem and its ok to buy bonds again...they lied...now they forcing holders to 50% cut
now those same folks want to leverage that $200 billion in borrowed money into $1 trillion by turning it into a insurance fund..
they are trying to sucker non euro countries like US, china, japan, UK into buying european bonds and promising that if they default they will pay 20% insurance.
so they are basically selling insurance on themselves...no conflict of interest there eh?
and also, when countries default they dont just default for 20%, they go big at around 60%
1. if bonds dont default they pay nothing and they suckered in $1trillion in cash to buy their bonds
2. if they do default for 60%, they only lose 20% and the foreign buyers lose 40%
3. if things get really bad, they back out on their promise of insurance (see "trustworthiness" above) because they cant afford it and writedown hits 80%
So you see, it is in EU interest that once they get the $1trillion in foreign money, to immediately default, as then europe only loses $200 billion and the foreign investors get stuck with $400billion loss, whereas without foreign investors they would be stuck with the whole $600bil loss. In the worst case scenario the foreigners get stuck with $800 billion loss and they back out of their insurance promise.
Also if they get the cool trillion, they wont have to make the fiscal cuts like cutting pensions, and thus will guarantee a default in the future since they no longer have the urge to make changes and can go on living how they were before which of course caused the problem in the first place.
so personally i dont see a lot of foreigners lining up to flush good money after bad, especially since the US, china, UK, and Japan have their own problems right now.
and in a turn of the surreal...
greeks, the main beneficiary of the bailout and debt writeoff, are holding a referendum against the bailout because it forces them to retire at a later age, actually pay their taxes, and makes their pension funds that own greek bonds have to take a loss..
and who said the european union was dysfunctional?